Investment Advice - Property vs Equity (Stock)




This article is about long term investments of property and equity (stock). Whether investing in property or equity, as an investor you should be aware that you definitely need to have ensured cash flow to tide yourself over any periods where the real estate market or the equity market turns against you.






Property VS Equity

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Property (real estate) has many advantages over equity or stocks.

  • Inflation Hedge

    Real estate is a perfect hedge against inflation (I am talking about in the long term! Don't think short term investment). Typically over the long term (20 years), property or real estate tracks the inflation rate more or less. Remember that the value of real estate can lag or lead the inflation rate, so I am referring to an average over the long term here.

  • Availability of Bank Finance

    With property and real estate, it is relatively easy to obtain leveraged/geared finance in the form of mortgage loans (As has been learnt to their detriment by mortgage applicants in the USA). You need to take responsibility for being able to pay your mortgage loan even if circumstances turn against you for a period of time.

  • Investment Opportunities

    The fact that real estate and property can sometimes be difficult to value, provides good opportunities for serious property investors to find real undervalued investments.

  • Volatility

    Unlike the stock market and equity market, it is particularly unusual for the property market to de-value overnight. So the amount of daily attention you need for a property investment is not nearly as much as you would need for a stock market or equity investment.

    The stock market is extremely dynamic and either you or your broker will need to monitor your equity investment almost daily.

  • Specialist Knowledge

    The property market doesn't requires specialist knowledge and training in order to invest successfully. It is far easier for the man in the street to learn the property market than other investment markets.

  • Investment Diversification

    Frequently, real estate investment returns are not highly correlated to other investments, offering unique diversification benefits.

  • Other People's Money

    If you find the right real estate investment, it is possible to gear this investment through bank mortgage finance, and fund the investment through rentals, so that you hardly need any of your own cash to pay for the investment. It is difficult to find bank finance for a stock market investment.

Final Words

The current (2008-2010) sub-prime mortgage finanical crisis in the global property & real estate market, led by the USA, is as a direct result of the entire financial industry from owners through to large financial institutions borrowing money against inflated, unrealistically priced real estate.

This is a problem of greed, not a problem of property or real estate.

Today is it real estate that has been exploited by this greed. Tomorrow the financial vehicle could well be something else. Greed will always exist.

For an interesting insight into the USA Sub-Prime Mortgage crisis, have a look at Stopping the Foreclosure Process. It makes you realise that the problems in the market here in SA are nothing compared with what they could be.

Much as I hate the NCA (National Credit Act) and feel that it has been applied too strongly, which has played a part in our depressed market, the USA is a good example of what can happen if credit is dished out like smarties at a kids party.


If you liked this article you may find these property and finance articles interesting as well.

What does inflation mean to a consumer?
Understand how to work with inflation to your advantage.
What is meant by the cost of money?
Basic explanation of opportunity cost & how it relates to the interest rate.
Principles of financial gearing
How to control a large investment with a small amount of money.
A strategy for long term wealth creation
Factors to consider before investing in anything.
Property vs EquityAdvantages of property investments over stock.
Straight Talk with a Debt Counsellor
What you never knew about debt review and debt counselling.
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